Margaret Hodge: After careful consideration of all the evidence, as the responsible Minister I decided that the building did not have sufficient architectural or historic interest to merit listing.

Henry Bellingham: I thank the Secretary of State for that answer, but is she aware that the £25 million to be spent at Woolwich will leave no legacy, because those ranges will be dismantled? It is difficult to envisage that they could be transported somewhere else. Why cannot the shooting sports events take place somewhere else? What will she do to help British pistol shooters who want to train for their sport prior to 2012? [Hon. Members: "They will have to go to Switzerland."]

John McFall: I could devise a great headline for that intervention along the lines of, "State Support Essential for Organisations that Made £40 Billion in Last Fiscal Year". The hon. Gentleman should get real and understand that banks have to operate in the market like everyone else. The depositors, however, need to be protected because they can do due diligence with regard to the Royal Bank of Scotland, Barclays, Lloyds or whatever. We all recognise that.
	That point leads me on neatly to the depositor protection fund, which is a key way in which small depositors can be assured in times of crisis that their funds are there and can be made available quickly. The Treasury Committee recommended a pre-funded system for that process. The benefits we identified were that it would reassure depositors that their money is there and that they can have it, and prevent banks from being called upon in times of crisis to bail out their insolvent competitors' depositors. On the pre-funded aspect, funds should be allowed to build up in good times so that they are available when things take a turn for the worse.
	Why did we recommend pre-funding for banks? It is obviously the case that banks have a responsibility to provide funds that assist in the maintenance of consumer confidence in the industry. We acknowledge that the Government might have to provide funding for the depositor protection scheme in case of a systemic difficulty, but a single bank—this is a lesson for the future—should not require Government support. We must put in place a mechanism to ensure that.
	It could be said that this is not the time for banks to pay into such a fund. The hon. Member for Sevenoaks (Mr. Fallon) and myself went to the United States in December— [ Interruption. ] We did so with the approval of the entire Committee, to talk to the Federal Reserve, the Securities and Exchange Commission, the Federal Deposit Insurance Corporation and others, and we took the opportunity to meet the American Bankers Association. I felt that the ABA would disagree fundamentally with us about a pre-funded scheme, but it encouraged us with respect to such a scheme, saying that it was important for consumer confidence. The support of such an organisation, which represents American banks, is a big plus in terms of having a pre-funded scheme.

Michael Fallon: I will not follow the Chairman of the Treasury Committee, the right hon. Member for West Dunbartonshire (John McFall), in a detailed analysis of what went wrong after the events at Northern Rock, although I want to add my tribute to the way that he led the inquiry and drove us forward to produce a report that has been warmly received, not just on both sides of the House but more widely in the City and beyond.
	The debate today is timely. We are in a financial banking crisis, and I do not think that we are near the end of it. We see a loss of confidence in commercial banking, the freezing of the bond markets and, perhaps still to come, the probable unravelling of the carry trade. I start from the position that there is probably no financial crisis that the Government or politicians cannot, if they try, make worse. We should be extremely wary of every temptation to try, not least because not all but some previous regulations certainly contributed to our present discontents.
	Basel I drove the search for yield off balance sheets. The Sarbanes-Oxley Act drove the search for yield across the Atlantic, fired up the City and all our financial services sectors and perhaps made every British building society consider itself the next Morgan Stanley. Some aspects of Basel II may well be unhelpful in binding the extremely conflicted credit rating agencies into the regulatory structure. The answer may not necessarily be instant, knee-jerk regulation.
	It is just worth looking at the Government's consultation paper. It comprises 29 proposals for new legislation, 11 different rule changes for the Financial Services Authority to consult on and a further 23 significant operational changes to the ways in which banks operate—plus a whole load of other stuff, dealing with Scottish and Irish banknotes or the composition of the Court of the Bank of England, which may not directly help us to unfreeze the bond markets but seems simply to have been stuck in there.
	Of course, we have to deal with the failure of Northern Rock. Why did it fail? Who failed? The answer is that they all failed: senior management made mistakes and the non-executive directors failed to check them; the regulator failed to supervise the firm and the tripartite committee failed to keep it out of trouble; and the Chancellor at several key points failed to act promptly and decisively. Even so, I am wary of wholesale legislative reform.
	The first general point—and our Chairman, the right hon. Member for West Dunbartonshire made it—is that regulators must do their job. The FSA did not do its job, as the report makes clear. Of 3,000 staff, only three were directly employed in looking at Northern Rock—the only significant UK bank without a London office. The ARROW—Advanced, Risk-Responsive Operating FrameWork—process, under which Northern Rock was supervised, was conducted once every three years; and the chairman and chief executive lacked any formal banking qualification. We should recall that this was one of the fastest growing UK banks.
	Like the Chairman of the Treasury Committee, I do not necessarily think that we ought to be impressed by the need for tidiness. When we asked the tripartite committee how its members did their job, we found that, as the right hon. Gentleman said, they all liaised and consulted and all did their little bits. Some degree of regulatory overlap would be useful and, so far as the larger banks are concerned, I would like the Bank of England to be given some overlapping power, like the Federal Reserve, to go anywhere, see anybody and ask any questions.
	Secondly, there are obvious gaps that need to be filled—for example, the special resolution procedure, where risk is systemic, and an easily understood compensation scheme for depositors. Those should have been put in place years ago; indeed, the Governor wanted them put in place years ago, and it is for the Government of the day to explain why they were not.
	Thirdly, it is clear to me at the end of this inquiry that the Bank of England should be at the centre of all this. Of course I accept that the Chancellor has to authorise in the last resort the expenditure or commitment of public funds, but I believe that he should do so on the Bank's advice and that the role of the Bank should be paramount. It is the Bank that should have overall supervision of liquidity; it is the Bank that keeps day-to-day watch on the money markets; it is the Bank that should have working knowledge of the bigger banks' operations. That is why I would like to see the Bank of England with its authority restored as a properly independent central bank, not simply the interest rate-setting arm of the Treasury. In the end, it is the Governor—not the Chancellor and not the chairman of the FSA—who should be the ultimate guardian of our financial system. That is why our report proposes new ways to strengthen the Bank's role.
	Beyond that, there is plenty for the FSA to be getting on with to raise its game: greater emphasis on liquidity management, more transparency and much more rigorous stress testing, as has already been suggested. We may need to look much harder at the whole issue of external validation. It would be fair to say that the Select Committee was unimpressed with the role of the credit rating agencies, which seemed to us hopelessly conflicted. One credit rating agency had taken over £3 million in fees from Northern Rock alone.
	We also looked hard at the role of the auditors. I do not understand how auditors can give a full, fair and firm opinion but exclude any treatment of the off-balance-sheet vehicles. I find it troubling that Northern Rock's auditor earned nearly three times as much in non-audit fees—in consultancy fees—for arranging the securitisation of Northern Rock's off-balance-sheet vehicles, as it did for the audit, which of course excluded them. I find that troubling.
	I conclude by raising two wider but related issues. The first is what we mean by financial stability and the systemic risk to it, and the second is the extent to which we can still regard banks as market institutions rather than public utilities. When I posed the first question on Second Reading of the emergency legislation a few weeks ago, I did not get an answer. I think that we need one, however, so let me put it a different way. In the 1970s, the Soviet Union had financial stability and Hong Kong probably did not, but I know which market we would probably all prefer to invest in. Financial stability is something we all say we are in favour of. In Juvenal's great phrase, "Laudatur et alget"—it is praised, but cold-shouldered. We say we want it, but we certainly are not content with it. We do not expect our bank to deliver it. We do not expect our pension fund to deliver simply stability. We do not expect our investment manager to deliver stability. We expect them, on the contrary, to search continually for better yield in this era of low inflation—to achieve higher than average rates of return, even as inflation disappears globally.
	Indeed, if something then goes wrong with that search for yield, we do not restrain ourselves from trying to establish, as we heard from the Liberal Democrats, an attempt to prove regulatory failure. If we do not get the yield we expect—if something goes wrong and our investment seems to sink—our constituents will try to secure regulatory failure and then demand a form of compensation. That is why we have to be extremely careful about the concept of financial stability and how we define systemic risk to it. Otherwise, there is no bank, no building society and no investment that can be allowed to fail if enough of our voters are committed to it. At the end of all this, I would prefer a definition of exactly which financial institutions are systemically important. I would like that defined, perhaps by the Bank of England in its financial stability report, but certainly by an authority independent of Government, not by shifting political calculations and emergency meetings of Ministers, so that it is clear to everybody which financial institutions cannot be allowed to fail and which ones still can.
	The second related question is, what are banks today? Was Northern Rock, for example, really a bank? It had remarkably few depositors. It seemed to me much more of a finance house—a rather poor Tyneside imitation of Morgan Stanley—borrowing money from around the world and betting on future movements of interest rates. To what extent are all our banks and building societies really market institutions? Are they instead public utilities, still dependent on implicit public subsidies when they fail?

Michael Fallon: They certainly will, but one starts from a position that includes the very large, major UK banks and works outward from there. I do not envisage the risk to be very large. What needs to be clear is that the House would be prepared to see the vast majority of banks and almost all building societies fail provided, of course, that the depositors were properly protected. Otherwise, we will not have a market financial system at all.
	Let us not forget that banks have been extremely profitable in recent years. Some of the British banks are world-class players. They have been extremely profitable for UK plc and for their shareholders, but they have also been profitable—very profitable—for their senior managers. That profitability, and some of the vast salaries involved, may now need to be priced a little more realistically. I should like the capital and liquidity requirements laid down for those banks to be readdressed. The House must never again be put in the position of suddenly having to commit more than £100 billion of public money.
	There are lessons from Northern Rock. There are lessons for the regulator that failed in its duty, for the tripartite arrangement that could not deal with the consequences, and for the Government who fatally dithered; but, ultimately, there are lessons for us all.

Charles Clarke: I am delighted to contribute to this discussion as the Member of Parliament for Norwich, South, where 25 per cent. of my constituents work in financial services. I must also point out that the headquarters of Virgin Money, which was directly involved, is in my constituency.
	I begin by paying tribute to the report, which is first class. In particular, I pay tribute to my right hon. Friend the Member for West Dunbartonshire (John McFall). The Committee has done an outstanding job on both the principal report and "Financial Stability and Transparency" by clarifying the issues, which will hopefully enable us to avoid problems in the future.
	The main reason why I want to contribute to the debate is to support the banking reforms proposed by the Select Committee in paragraphs 314 to 317, which deal with the role of the proposed deputy governor and head of financial stability. I support that role, which is the right way forward. Before I discuss those reforms, however, I want to discuss one or two other specific aspects of the report.
	On moral hazard, the report describes the controversy among senior people in the world of financial services about the extent to which moral hazard should or should not be taken into account and dealt with. I am nearer to the view expressed by the Governor of the Bank of England, even given all the proposals, that moral hazard is a real factor. That relates to our earlier debate about the responsibility of shareholders and of businesses for business practices. The right hon. Member for Holborn and St. Pancras (Frank Dobson) and the hon. Member for Twickenham (Dr. Cable) discussed the responsibility of considering mortgages in terms of the sub-prime issues. It would be a serious mistake to relax the regulatory obligation, and indeed the competitive obligation, on financial services businesses to be responsible in their practices, and we should have mechanisms to make that clear.
	As the report indicates, there are failings in the existing system. The responsibility of the institutions to their shareholders is not at all clearly set out, and many shareholders are simply ignorant of the business practices that were there. But fundamentally, despite the real sadness for many small shareholders who owned shares side by side with major hedge funds, the report's comments on financial stability and transparency indicate the range of issues and the importance of companies taking responsibility for their own acts.
	I accept the report's recommendations about the need to protect depositors better; a number of other contributors to this debate have referred to that. At the beginning of all this, there was insufficient clarity about the importance of protecting the depositor in contrast to the importance of the role of the shareholder. That is an important distinction that the report brings out well, but it was not brought out so well during the public debates at that time.
	That brings me to my second point, which is about the role and effectiveness of the Financial Services Authority. I do not have a great deal to add to what the Treasury Committee Chairman said, except to emphasise the point that it is the key role of the FSA to offer proper judgments in matters such as this, rather than simply going through process and procedure. The report mentions two aspects—that of the rapid expansion of the business and that of the declining share price of the company. They should have made the FSA judge more carefully what was happening in the organisation. The hon. Member for Twickenham referred to the quality of assets in relation to such issues. The FSA has learned lessons from this whole debacle, but the fact is that it should not have needed to learn them from a debacle. The lessons should have been learned before.
	Thirdly, I want to comment on what the report calls
	"the support operation and stopping the run"
	and on the ability to plan to deal with such crises. It is clear that the tripartite system did not work as it should have. Paragraph 280, on the overall operation of the tripartite system, and paragraph 289, which is about the communications system in particular, are powerful and, to an extent, damning. I hope that the Government will deal with them fully in their final response to the issues.
	Essentially, there is a serious criticism of the preparation and work that were done. I hope that the contrast that I draw will not seem too extreme: my experience as Home Secretary in the period of the 7/7 disaster—the explosions in central London. Whatever the causes and circumstances at that point, tremendous, fully prepared emergency service co-operation immediately came into operation, as I and the current Chancellor saw from close by. That co-operation involved the taking of responsibility and a clarity of command and control issues that was impressive to see.
	I shall give an illustration from the communications side. Some hon. Members may recall that early in the afternoon on that 7 July, there was a major press briefing in which all the services spoke together to the country. They said, "This is what we are doing and this is how we are dealing with the circumstances." The key point, shown so well when contrasted with the run on the bank, is that the people themselves were players in the events as they emerged. It is critical to communicate effectively with people. The report has drawn that point out well. As I said, there are serious points in paragraphs 280 and 289. It is important that the Government give a lot of attention to those in their response; I am, by the way, absolutely sure that they will.
	My fourth and main point is about the section of the report entitled "Dealing with failing banks", which addresses some of the criticisms made by the hon. Member for Twickenham. The section says that the FSA has to find a way of dealing with issues of the type that we are discussing and change its practices and procedures. The section tries to address those issues. It makes a whole string of proposals in respect of an improved legal framework and procedures. I broadly support those, and the Government have already constructively responded to them to try to find the right solution to the problems.
	The section also deals with the question of the European Union market abuses directive, which I found confusing at the beginning when evidence was given to the Committee but which is now fully explained in its report. I want to add the rider that in the modern era it is almost impossible to try to run covert operations in relation to this area. One can see why that was how it worked as recently as 20 or 30 years ago, with the tradition of the Governor of the Bank summoning all the players into a quiet room somewhere in the square mile and saying, "We're going to sort it out like this, this and this." However, predicating a system on the operation of such a covert system is very difficult to achieve, irrespective of the detailed formulation in the market abuses directive or in other legislation, and the Committee was right to acknowledge that.
	I particularly want to reiterate the point made by the Chairman of the Select Committee when he called for leadership in these matters. If the command and control systems are to be got right as between the various aspects of the tripartite system, if the preparations are to be got right, and if there is to be an authority that means that financial institutions, Government agencies and so on will operate in a co-ordinated way, that requires leadership and authority that people accept, and no ambiguity of any kind about where the buck stops in such a situation. That is why the Treasury Committee is right to recommend, as it does in paragraphs 314 to 317, the establishment of a new post of deputy governor and head of financial stability.
	There can be arguments about how that is carried through in detail, what is precisely the right way to do it, and whether the Committee has got it right in every aspect of those paragraphs; I do not commit myself to the specific detail on each point. However, there should not be argument about the need for an individual who is responsible for taking decisions in this field—someone who is publicly known to be responsible and to whom people, including the Chancellor and Prime Minister, will naturally turn for advice in these situations.
	I mean no disrespect to the FSA in saying that I fear that if the FSA is chosen as that vehicle, the individual concerned will not have the authority that would go with the role of a deputy governor of the Bank of England. I know that it is a difficult question and that there are plenty of arguments to the opposite effect. However—I have talked to the Chairman of the Select Committee about this—the reason why I was keen to speak in this debate was that I wanted to lend my support to the Committee's proposals. In such circumstances, when we are dealing with potential crises that can be deeply destructive of this country's economy and political structure, we need clarity, and that is what it recommends.
	On the overall position, although I was personally extremely sceptical about the possibility of a private sector solution to these events as they emerged, I am sure that it was right to look, even briefly, at the private sector solutions. Nevertheless, I have been of the view from the very beginning that public ownership and rundown was the best strategy, and I am concerned that leaving the key question—"rundown or going concern?"—as an open matter will make it more difficult to resolve the situation than in other circumstances. The principle of a level playing field for all financial services institutions guarded by the institutions of the state, the law, EU law and so on is very important for all the people who have investments in a wide range of financial services institutions. There must be no question of one particular financial services institution being picked out for public sector support in contrast to others. That is a controversial point, but I think that it is what will, and should, ultimately emerge out of this state of affairs, and it is where we need to go in future.
	I look forward to the Government's response to this excellent report. I hope that the Select Committee will continue to give attention to these matters and will consider one or two of the questions raised earlier in the debate.

Mark Field: This has been a very interesting debate. My hon. Friend the Member for Sevenoaks (Mr. Fallon) was absolutely right to identify the need to avoid at all costs the kneejerk reaction of rapid regulation that might unravel and be regretted in future. That was implicit in the Treasury Committee's report.
	The right hon. Member for Norwich, South (Mr. Clarke) made a very interesting contribution, drawing a parallel with the events of 7/7, when he was Home Secretary. It would be difficult to have the clear command structure among people in financial services that there was for the armed and emergency services on that day. It is a little idealistic to assume that we could put such a structure into place, however it worked. The Select Committee and the Treasury will continue to debate the issue.
	There have been more spectacular banking crises than the one that affected Northern Rock in recent months. The phenomenon of a run on a bank was, after all, almost commonplace in Victorian times. More recently, the collapses of Bank of Credit and Commerce International in 1991, and of Barings only 13 years ago, show that even a highly regulated banking sector is never immune to mismanagement or to fraudulent activity. The fiasco of Northern Rock is a modern-day, sorry catalogue of poor judgment and woeful indecision.
	I agree with relatively little of what the right hon. Member for Holborn and St. Pancras (Frank Dobson) said about the City, but some elements of his comments were right. Certain enormous incentives for the banking industry have allowed some of the problems that have emerged in the credit crisis to come into play. It is not for the Government to regulate on the matter entirely, and the right hon. Gentleman recognised that implicitly, but some perverse incentives in the banking industry have contributed in bringing us to this pass.
	Some have been keen to point the finger of blame entirely at the actions—or inactions—of the Treasury and especially at the erstwhile Chancellor of the Exchequer. In truth, responsibility for what happened at Northern Rock should be more widely spread. First and foremost—it was absolutely right that the right hon. Member for West Dunbartonshire (John McFall) referred to this—the senior management of the Bank, in particular its former chief executive, and the array of non-executive directors bear some responsibility. Collectively, they should have realised that the aggressive growth in Northern Rock's turnover strategy depended on continued economic blue skies and liquidity in the money markets. Northern Rock's strategy was so diametrically opposed to those of its competitors that alarm bells should have been ringing about its sustainability amongst the well-remunerated non-executives—a roster that included some well-known City names.
	Once the credit crunch hit in early August, the Bank of England should have been far more fleet of foot. Reference has been made to the role of the Financial Services Authority, but I believe that the Bank of England was at fault to a certain extent, particularly with regard to its amenability or otherwise to Lloyds TSB's proposal to take over Northern Rock before the public became aware of the nature of the crisis. That would, no doubt, have required substantial Treasury guarantees, but UK taxpayers would almost certainly have been in a more favourable position than the one in which they find themselves now, several months on.
	One of the biggest, longer term casualties of the whole affair will be the Governor of the Bank of England, who has played an important part in overseeing this debacle. His credibility in the City has been severely damaged, and it is difficult to see how he would be the right man to lead any restructuring of the Bank of England, which is my party's preferred approach.
	This episode, coupled with the rapid internationalisation of the ownership of financial institutions in the City, puts into perspective some of the harking back to the pre-1997 arrangements. The City is a club no more and the Bank of England's role as judge and jury is probably best confined to the past. Meanwhile, as a number of hon. Members have pointed out, the Financial Services Authority lacks clout and respect among leading City institutions, meaning that banking reform should be informed by 21st century requirements, rather than by a return to some bygone era.
	We must remember, however, that the difficulties for Northern Rock did not start last September—they only became public in that month. Once the crisis was out in the open, queues began to develop outside branches of the bank. At that stage, the possibility of an autumn general election, and the fact that the bank was a large, almost iconic employer in Labour's north-eastern heartlands, resulted in a catalogue of ill-advised Treasury decisions. To a large extent, this crisis was driven by political considerations, which has not been helpful. I accept that simply allowing Northern Rock to collapse was never an option. As the right hon. Member for West Dunbartonshire said, banks are different from other companies in that they have depositors as well as shareholders. Although the value of a shareholder's investment can, in principle, be allowed to diminish to zero, the entire competence of the banking system depends on banks' depositors being assured that they will be compensated—in my view, fully—in the event of a collapse.

Mark Field: I shall try to make this a solo rather than a duet.
	It is fair to say that, when the crisis emerged—I admit that it informed some Conservative policies, too—we were in the cauldron of a likely pre-election campaign. Consequently, we went down another path when we might have moved more quickly to nationalisation, which, many people realised by November and December, was definitely on the cards. I have some sympathy for the Government's position. They wanted to look for a private sector buyer and perhaps they looked for too long. There was also an implicit recognition that, when we had come to such a pass, things would not get better and were, indeed, likely to get worse. However, in those few weeks in September, decisions were driven by a political agenda. I am not necessarily being naïve; a political agenda has its part to play at any time, but let us bear in mind the potential imminence of an election and the fact that the building society had great strength and roots in the north-east of England—perhaps if it had been in the south-east of England, there might have been less of a rush towards Government activity.

Mark Field: That is fair to say, about one of the Chancellor's many minor decisions.
	The "temporary" nationalisation of Northern Rock has been forced on the Government as an implicit recognition that, economically, things are likely to get worse in this country before they get better. No one should assume that uncertainty in the financial markets is a short-term phenomenon. Speaking to people in the City, I have detected that whereas confidence was renewed in January and early February, there has been a recent slump in confidence, although I appreciate that much of that can ebb and flow. However, there is little doubt that it will take less than five years at the absolute minimum for taxpayers to extricate themselves from Northern Rock without net losses.
	The Government should be resolute in resisting the claims of shareholders for compensation. That applies particularly to the hedge funds that piled into Northern Rock stock in the autumn hoping for quick speculative returns. They gambled and they lost. Regrettably, however, we cannot draw distinctions among the different classes of shareholder, however much we might wish to protect the interests of small, loyal Northern Rock investors or former employees and suppliers who may have held stock for some years. No more taxpayers' money should be expended on bailing out Northern Rock shareholders, beyond that which will be determined by arbitration.
	Hon. Members in all parts of the House in the months to come will doubtlessly be inundated by pleading on behalf of well orchestrated, high profile shareholder groups, as they battle, perhaps even in the courts, for compensation. The temptation to make common cause with such groups should be resisted. We now need to give the new chief executive, Ron Sandler, the breathing space to make plans for the future that are economically viable, rather than simply politically expedient. The likeliest and wisest way to proceed involves the parcelling and sale of parts of the Northern Rock business, as market conditions allow in the months and, potentially, years ahead.
	There is no easy fix. Politicians need to appreciate that if taxpayers are to stand a realistic chance of recapturing their guarantees and loans in full, we almost certainly face a long haul.

Adrian Bailey: I, too, congratulate Treasury Committee on its work—as I am not a member of the Committee, perhaps I am better placed to do so. It produced a comprehensive report on a detailed and arcane subject, which was not made easier by the fact that the issues were unfolding as it did its work. The nature of the Committee's conclusions does it great credit.
	Before coming to the substance of my remarks, I should like to declare an interest. I am chair of the all-party group on building societies and financial mutuals and make my comments as a committed supported of the building society and mutual sector. However, although I am predisposed towards the sector, I recognise that companies in the financial services market are extremely important and that they complement the building society sector. It is in the interests of the consumer that the public have confidence in both sectors.
	In 2005 and 2006, the all-party group conducted an investigation into the consequences of demutualisation for building societies, in a report called "Windfalls or Shortfalls?" The purpose of our investigation was to find out exactly what benefits, if any, had arisen from demutualising and who had enjoyed them. I will not go into the full range of our conclusions, except to say that the advantages that building societies enjoyed in not having to pay dividends to their shareholders was passed on to the consumer, hence building societies tend to dominate in the best value tables.
	Interestingly, the one company that stood alone and bucked the situation was Northern Rock. In its evidence to the Committee—it did not give verbal evidence, but it sent a letter—its deputy chief executive, David Baker, said:
	"Since 2000 we have been able to tap into Residential Mortgage Backed Securitisation markets to fund a growing proportion of our lending."
	He gave a figure of about 37 per cent. by 2004. He continued:
	"These funds have been raised increasingly abroad in Europe, USA and more recently in the Far East. Our wholesale funding had followed a similar trend and about 75 per cent. of all our new funding is now raised abroad."
	He went on to say, most conclusively:
	"We do not believe this would have been possible had we been a mutual building society."
	In view of the consequences of the model outlined by David Baker, I am sure that investors in building societies throughout the country will be profoundly relieved by that statement, and I emphasise it because it is of particular importance that there are regulatory obstacles to building societies funding a proportion of their lending through the wholesale market. That has provided a protection and security to building societies that has not been so evident in the banking sector.

George Mudie: As always, the articulate hon. Gentleman is spot on. He is a valuable member of the Treasury Committee.
	If I wanted to be controversial, I would say that one point of consensus in which I do not share is the heaping of blame on the FSA. Yes, it was lax in its regulation, as is spelled out in the report, but I do not like the way in which the other culprit, the Bank of England, has stolen off the stage without anything being said. It has a lot to answer for.
	In an intervention, I asked my hon. Friend the Member for West Bromwich, West (Mr. Bailey) about the market solution that we all wanted. Why was it not pursued? We have had no answer. Why is there no evidence that anybody from the Bank of England met the prospective buyers, one of which is now known to have been Lloyds TSB? We have had no answer. Why did the Governor dismiss that point in this fashion: "Oh, I vaguely remember a telephone call that came through to my officials from the FSA"? At such a time, I would have thought that Eddie George would have had that bank in on the Sunday and closed the doors, and they would have gone out at the end of the day with a deal done on a market solution. But that is a judgment call, is it not? I do not think that Eddie George should have dismissed the situation by not taking a telephone call, by not speaking to those involved and by not bringing in people from the city; he should have been straining every sinew to get a market solution. Clearly, however, the Bank of England did not do that.

George Mudie: That is an interesting question. It was remiss of me not to mention the hon. Gentleman, as he raised the matter in a question earlier today.
	Members of the Committee might disagree with me, and it might be too cynical, but my point is worth making. It might be the wrong answer, but like the hon. Gentleman I would welcome another answer. The big question is: what on earth happened? Why were no efforts made to bring other banks in? Why, when the Government had a buyer, were the discussions not exhausted? Why was there no record of the negotiations? Those are good questions, are they not?
	Before I leave the subject of the bank, another question arises on the subject of moral hazard, and leads to that of regulation. Moral hazard has a place in a philosophical discussion. It also has a place in the wider picture, but I prefer what Greenspan said. He said that he saw it as his job not to burst the bubble—although there are questions about that—but to help pick up the pieces. We were in a difficult situation: the bank's going down could have led to a domino effect. The Bank of England knew that, but sent a letter that was several pages long to the Treasury Committee to explain why it was not morally right to put liquidity into the market. A week later, that was done. If I were in the City, I would want security and confidence in people's judgement and I would want consistency, and I would be wondering what on earth was going wrong with the Bank of England I am just throwing that in. It is easy to take a lazy kick at the FSA, but the Bank has to answer questions, too.
	The hon. Member for Ludlow (Mr. Dunne) asked a question, and I shall respond. I would go to the tripartite arrangements and why they did not work. First, I support the assessment of the ex-chairman of the FSA, which he gave in a speech at Oxford. He said that considering the tripartite arrangement and how it worked, one should forget about structures and look at people. I thought that that was an interesting remark. Everybody in this Chamber, as a politician, knew what he was saying. It was a valuable but not well-reported comment. As everyone knows, it is possible to build a huge structure with huge organisations, but those organisations are only as good as the people inside them. If the people inside them are not working well, there is a difficulty.
	Let me be controversial. Attacks may be made on me from all sides, but as a cynical and hard-bitten politician I wonder whether the Bank of England saw this as something for which that upstart the FSA was responsible. It is well known that the Bank of England as an institution did not like either those powers being taken from it or the creation of the FSA.

John Thurso: May I begin by echoing comments made in the first two contributions to the debate? The first contribution was made by the right hon. Member for West Dunbartonshire (John McFall), and I echo what he said about the staff who helped to produce the Treasury Committee report. They gave not only great quantity, but great quality. The second contribution was made by the hon. Member for Sevenoaks (Mr. Fallon), and he paid tribute to the Chairman; it is worth restating what he said.
	I should also like to pick up on a comment that the hon. Member for Leeds, East (Mr. Mudie) made about my hon. Friend the Member for Twickenham (Dr. Cable). He is probably right to say that my hon. Friend's comments were harsh but accurate. The hon. Gentleman asked me to have a word with my hon. Friend after the debate. I say this to my hon. Friend: he is absolutely right, but it is worth bearing in mind that since we issued our report back in January, much evidence has come out. We were working on the basis of the evidence that we were given. My hon. Friend raised with me the point that although many eminent people gave one level of evidence, there are now somewhat different views coming out. He said that we might like to look again at the matter at some point, and perhaps it is an issue to which the Committee will return.
	I do not want to go over the whole report; I will cherry-pick a couple of points. The hon. Member for Leeds, East made a valuable point, the theme of which was people. That is the issue that we ignore at our peril. Interestingly, when I attended an industry dinner last week, I sat next to an eminent director of an eminent company, who said to me, "Why on earth did you bother to rescue Northern Rock? Why didn't you just let it go under? What was the purpose of rescuing it?" It is worth reminding ourselves of what we all set out to do. There are, of course, two reasons for what we did. The first, obvious, and probably most important, reason to act was to avoid contagion in the banking industry. We saw what contagion could do, if let loose, when we saw a televised run on a bank. Not only was it the first run on a bank in more than a century, but it was televised. The run gathered pace like a brushfire, so the Government were absolutely right to act quickly to deal with the situation.
	The second reason concerns our relationship with depositors—an issue that a number of speakers have raised. It is important that we look at what we mean when we talk about financial stability, as the hon. Member for Sevenoaks said. An important part of it is that the ordinary citizen should have confidence that when they place an amount of money in a bank, they do not find themselves the lowest unsecured creditor in the chain. We have heard the term "moral hazard" applied to banks, but during our inquiry, I heard the term applied to the high street depositor. That is why the old system was not 100 per cent. The idea was that there should be some moral hazard attached to the depositor. That is ridiculous, and has been proved to be so. If the entire weight of the regulatory system cannot ensure sufficient due diligence, how on earth can the individual in the street be expected to ensure it? A clear lesson from our report is that there should be 100 per cent. protection, up to an amount, to ensure that depositors are looked after.
	Our report makes it quite clear that the start of it all was the board of a bank that made some fairly disastrous decisions. It followed a very high-risk model. There are a few points arising from that, all of them about people. One of them concerns the board. Comment has been made about its composition, but there is a general point to be made. I serve on a plc board as a non-executive, and have served on other boards. I am deeply concerned that, after Greenbury, Cadbury, and all the other reports that have been produced, a box-ticking mindset has entered into many sectors of corporate governance, replacing an old-fashioned, common-sense duty of care. That duty of care needs to be recaptured. If the board of Northern Rock had applied a common-sense test, as opposed to ticking a lot of boxes, it might have realised what was so obvious to all of us, with hindsight—that its model was extreme.
	The last point about the company itself is that it was under tremendous pressure from the City and City investors to produce good-quality figures quarterly. I question whether banks are the appropriate vehicles for high risk and high return; we debated that point today. In return for banks having a degree of protection and a safety-net available to them, there must be a degree of utility as regards them. I would not take that too far, and I certainly would not go as far as the right hon. Member for Holborn and St. Pancras (Frank Dobson) does, but if banks are to be in that position, there has to be a balance. We should not really look to them for high risk and high rates of return.
	I now come to the tripartite authorities. Again, it is a question of people. The point was well made by the Chairman of the Select Committee and the hon. Member for Leeds, East that the relationships that existed in 1997, which were left over from a previous generation, no longer exist. The war game aspect is important, because while all three entities made mistakes, and all tried to do their best, things failed totally when the three of them had to act in concert in a crisis. It is that kind of work, which the right hon. Member for Norwich, South (Mr. Clarke) likened to Cobra planning in the services, that needs to be done. It is not yesterday's crisis, which has been regulated for, that has to be dealt with. What are needed are the people with the training and the skills to move in to deal with tomorrow's crisis.
	My last point on the topic of people concerns leadership. It is clear that we all expected the Treasury to be the lead organisation of the tripartite authorities in such an affair. There are many mitigating circumstances. Many of the key players in the Treasury at official level had moved next door not long before. There was a relatively new ministerial team. There were several reasons why the people were not necessarily in place, as they could have been. Concern is expressed in articles in the  Financial Times today and in other financial pages about whether the Treasury has the skills in depth that it needs. That is not a criticism of any person. I recall that when I used to run businesses, one would look at the organisation and say, "These are good people, but have they been trained sufficiently? Between them all, are there the necessary skills?" It is a worry that the Treasury does not have those skills, and I hope it will be put right.
	A further point, which is not to do with people, is the stigmatisation of the lender of last resort. As the right hon. Member for Hitchin and Harpenden (Mr. Lilley) so eloquently pointed out, in order to work, the system must have an inherent flaw in it, and that is dealt with through the lender of last resort. Effectively, the status of the lender of last resort was stigmatised in the press. I do not remember which of the big five banks it was, but one of them had a little borrowing operation earlier, and newspapers were ringing up anybody and everybody to try and find out whether another bank had the same thing. If we are to have a lender of last resort, which is a prerequisite for ensuring that the system works smoothly, there cannot be a stigma attached to it.
	Finally, on house prices, we in the United Kingdom have a curious house market which, for historic reasons, delivers an increase in price and equity that is not shared with many European countries. Two parts of the market work simultaneously. One is a lack of supply of houses and land, and the other is an over-supply of money. When those two come together, the problem arises. My hon. Friend the Member for Twickenham has often made the point that we cannot rely on that kind of growth in the future.
	Like all great calamities, the run on the Rock, like the Tay bridge disaster, required a series of events to take place in an unforeseen order. It is easy, with hindsight, to point out all the things that went wrong. We must ensure for the future that there are the right people in the right place with the right skills and sufficient training. We need to make sure that banks as individual organisations are properly regulated and that—the point that our report makes—the system as a whole has overarching supervision.

Mark Hoban: The debate has been conducted in a measured and reasonable tone. I congratulate my hon. Friends the Members for Sevenoaks (Mr. Fallon) and for Cities of London and Westminster (Mr. Field), my right hon. Friend the Member for Hitchin and Harpenden (Mr. Lilley) and my hon. Friends the Members for Hammersmith and Fulham (Mr. Hands) and for Ludlow (Mr. Dunne) on their contributions, as well as the hon. Members for Twickenham (Dr. Cable) and for Caithness, Sutherland and Easter Ross (John Thurso) and the right hon. Member for Holborn and St. Pancras (Frank Dobson), who presented a stout defence of old Labour's values, but seemed sadly out of place in today's Chamber and today's Labour party. I also congratulate the right hon. Member for Norwich, South (Mr. Clarke), the hon. Members for West Bromwich, West (Mr. Bailey), for Leeds, East (Mr. Mudie) and for Northampton, North (Ms Keeble), and especially the right hon. Member for West Dunbartonshire (John McFall).
	The right hon. Member for West Dunbartonshire opened the debate in characteristically understated fashion and thus made the Treasury Committee's critique of the events of the past few months all the more devastating. The Committee's report, which found consensus among its members, sets out some of the major issues that we need to face when considering banking reform, and analysed thoroughly the reasons for the position today, whereby the Government have nationalised Northern Rock.
	We all accept that the credit crunch is a global problem and that it was and remains a significant challenge to financial markets and Governments. It was also a significant test of the tripartite arrangements, which the Prime Minister introduced and which were found wanting. The hon. Members for Leeds, East and for Caithness, Sutherland and Easter Ross said that perhaps the people involved contributed to the problem. However, I strongly believe that any institution that is set up to regulate the financial services sector should be effective, regardless of who fulfils the roles of, for example, chairman of the Financial Services Authority, Governor of the Bank of England or even Chancellor of the Exchequer. Those arrangements should work whether it is the first or last day of someone's time in office. When we consider the Government's reforms, which they will introduce later this year, we must ensure that they work regardless of the personnel involved.
	As the report makes clear, there are concerns about the regulatory supervision of Northern Rock by the FSA—it goes into some detail about that. We should welcome the fact that the FSA is conducting its own review of its relationship with Northern Rock.
	The report also highlights the role of the Bank of England and the provision of liquidity in the market. I believe that the report is right when it says that it is difficult to assess whether the Bank of England, by responding to calls from other financial institutions to increase liquidity, would have prevented Northern Rock's problems from emerging. There is no clear cut case one way or the other.
	The most telling criticism of the events of the past few months focuses on the steps that were taken when it was decided that the Bank of England should act as lender of last resort. The mishandling of the announcement triggered the panic on our high streets and led to the Government being forced to announce the guarantees on Monday 17 September. It was clear that the tripartite authorities expected that the announcement could have a negative impact on depositors. Sir John Gieve, whom the report quotes, said:
	"In the event we knew that there was a risk that that balance would go the wrong way and it did."
	The Governor of the Bank of England said:
	"The nature of a bank run is that it is a knife edge: it might happen, it might not. That is exactly why a bank run is so difficult to handle."
	I believe that that view was supported by Callum McCarthy. Given that uncertainty about how the announcement about lender of last resort status would be taken by the depositors, it is regrettable that more thought was not given to the contingency plans that should be in place or the handling of the announcement.
	I was interested in the comments that the right hon. Member for Norwich, South made, when he contrasted what happened in September with his experience of the events in London of 7 July 2005. They were two very different experiences, but the fact that there was a well organised and well oiled machine in place on 7 July is in stark contrast with what happened in the days around the Bank of England's declaration that it would extend facilities to Northern Rock. Insufficient thought had gone into the presentation of that decision, which did not go down well with the electorate or Northern Rock's depositors.
	Once people saw the queues running round the block, that triggered the questions: what do we do now? What is our contingency plan? Again, it was clear that insufficient thought had gone into the guarantees and related issues, and that the discussion on the guarantees was not brought to the attention of the principals until 16 September, which was the day before they were made. It therefore appears that the response to the run was cobbled together, rather than being part of a long-planned-for procedure.
	Comments have been made about wargaming and whether people should have gone through the scenarios. It is clear from the report that there had been some wargaming and discussion about what should happen. The Governor of the Bank of England pointed out—again, this is supported by the chairman of the FSA—that more work needed to be done on the arrangements for handling a banking crisis. The Governor described that work as urgent, but unfortunately it did not proceed with an appropriate degree of urgency. As a consequence, when the banking crisis happened in September, the arrangements were not in place to handle the situation in a way that would give confidence to depositors at an important moment.
	Having identified the risks two or three years ago, the Government did not prepare for a banking crisis and did not take the action that the Governor had said should be taken, which created a problem in the long term. Consequently, when the arrangements that were put together by the Prime Minister faced their first test, they failed because of a lack of leadership and a lack of preparation. The Treasury should take ultimate responsibility for those problems.
	Let us consider the actions that we need to take. There is common ground on the need to intervene earlier to prevent the deterioration of a bank's position. The shadow Chancellor, my hon. Friend the Member for Tatton (Mr. Osborne), made that argument in December and the Chancellor has adopted that approach. Rather like the Treasury Committee and the right hon. Member for Norwich, South, we believe that the powers for early intervention should rest with the Bank, not the FSA, which flows from the Bank's role in money markets and its responsibility for monetary policy. Also, the fact that it acts as the lender of last resort means that it should have the powers to intervene. That will lead to some overlap between the Bank and the FSA, but the Treasury Committee was right to talk about the need for
	"'creative tension' within the regulatory system".
	It is right to have that tension there and to create institutional arrangements that are perhaps not as tidy, but which would be more effective. We also believe that the deputy governor's role in respect of financial stability should be enhanced and that an experienced banker should fill that role, as an understanding of financial markets and institutions will be critical to the Bank's wider powers of intervention.
	We have advocated a special resolution regime for the banks concerned. There should also be powers to ensure that deposits protected by the deposit insurance scheme are ring-fenced.
	I shall talk briefly about the deposit protection scheme. It is important that the scheme should provide reassurance to customers when there is a banking crisis. It is right to revisit the scheme in the light of the problems that we have seen. We believe that it is right to increase the cover to £50,000 and, crucially, to streamline the administration of the scheme so that protected deposits are paid out quickly, which again should reassure consumers. We differ from the Treasury Committee in that we believe that the scheme should be not a pre-funded scheme, but a post-funded scheme. A pre-funded scheme would impose an additional unnecessary cost on banks and other deposit takers, which would be borne by customers and shareholders. Deposit protection schemes should be a safety net. We should have a regulatory system that is predicated on effective regulation and the prevention of crises, rather than one focused on picking up the cost of failure.
	As both the British Bankers Association and the CBI have made clear in recent days, it is important that we should get those reforms in the banking sector right. My hon. Friend the Member for Sevenoaks was right to be sceptical of the benefits that further regulation could introduce. We have seen the impact of the Sarbanes-Oxley rules on financial markets in the US and we cannot afford to make the same mistakes in this country.
	We are still left with unfinished business in connection with Northern Rock. The nationalisation of Northern Rock is not an end in itself and is meant to be only temporary. However, no one can quite tell us how long "temporary" is meant to be, so perhaps the Financial Secretary could clarify that this evening. We are still waiting for the Treasury to bring forward the framework agreement between itself and Northern Rock's management setting out the strategic direction of the nationalised business. We are still awaiting the business plan from Ron Sandler, which will determine the future size and shape of Northern Rock. I should be grateful if the Financial Secretary could clarify further when we might expect to see both the framework agreement and the business plan.
	The cynic might think that the publication of those documents has been delayed to avoid the political fallout if the strategic objectives and the business plan require a shrinking of Northern Rock's staff, which would be particularly damaging to the Labour party in the north-east. I hope that the publication of those documents will not be delayed until after the local elections at the start of May, because that would do a great disservice to the taxpayers and would go to the heart of the point that my hon. Friend the Member for Hammersmith and Fulham made about insufficient accountability and transparency to the House about the operations of what has been referred to as the people's bank.
	We also know that widespread concerns have been expressed about the anti-competitive impact that the Government's guarantees for Northern Rock could have on the markets for mortgages and savings products. We welcome the assurances given during the passage of the Banking (Special Provisions) Act 2008 that the Office of Fair Trading would play a significant role in monitoring that. Could the Minister update us on how discussions with the BBA and the Building Societies Association on that issue are being pursued?
	One issue that has perpetually dogged the debate about Northern Rock is the treatment of Granite, which my hon. Friend the Member for Ludlow has raised persistently over weeks, as has the hon. Member for Twickenham. There is a debate about what liabilities the taxpayer has taken on—again, that is reflected in the supplementary estimate, which comments that our liabilities are "unquantifiable". The Office for National Statistics is clear that they include Granite. That was the thrust of the ONS's evidence to the Treasury Committee last week, when Martin Kellaway said:
	"The Granite securitisation is complex. To whom do the risks and rewards accrue? They accrue to Northern Rock".
	On that basis, taxpayers will bear the risk of Granite's funding, but the Chancellor in his letter to the hon. Member for Twickenham said:
	"Granite and only Granite is liable to its bondholders under any scenario. The Government has not provided any guarantee arrangements to...bondholders."
	Will the Minister tell us who is right? Is it the ONS, which is the custodian of the true figures for Government debt, or is it the Chancellor who wants to keep those debts off the Government's balance sheet and avoid the Government's fiscal rules being breached if they exceed 40 per cent. of GDP?
	The Government cannot continue trying to deny the fact that the taxpayer has taken on significant obligations through the nationalisation of Northern Rock. It is time that the fiscal rules and the measurement of the Government's debt properly took into account Northern Rock's full liabilities, so that taxpayers will know the risk that they are exposed to, as a consequence of nationalisation. That is the big gap that we seem to have in this debate. Whether in respect of the quality of the assets that have been acquired by nationalisation or the taxpayer's exposure, we need to do much more work to ensure the transparency of Northern Rock to the taxpayer and the House.
	No one should dismiss what happened to Northern Rock as simply the consequence of a global credit crunch. As the report indicates, Northern Rock's problems, although created by its management and their strategy, have become a headache for each and every one of us, as a consequence of the mismanagement of the crisis. I am afraid that that mismanagement is down to the Government, who must shoulder the blame for every taxpayer in the country having a second mortgage on their homes as a consequence of the nationalisation of Northern Rock.

Jane Kennedy: I could have made a point about that in response to the hon. Member for Hammersmith and Fulham (Mr. Hands), but we have covered such areas many times before— [ Interruption ]—not in the detail that he mentioned, but I hope that the hon. Member for Ludlow will accept all the issues raised in today's debate and the detail that the Select Committee has included in its report will be looked at very carefully by the Government. We are engaged in a detailed consultation. Opposition Members in particular have criticised us for not doing more, but I draw to their attention—they may have failed to see it—the very significant response that has been included in a well-received consultation document that responds in many respects, although not all, to some of the Select Committee's recommendations. It is entirely appropriate that we now learn the lessons of the experience of last summer and the decisions and circumstances that led us to nationalise Northern Rock.
	The decision to nationalise was taken some weeks after the Select Committee had completed its work, but none the less, we can take into account what then happened and look at the detail of its report and the Government's response to date with, I hope, a positive outlook.
	My right hon. Friend the Member for West Dunbartonshire said that there was too much political involvement in Government proposals for a Cobra-style arrangement during the crisis. A number of hon. Members raised that issue. The Government are consulting on how such arrangements should operate in practice and which institution is involved in which circumstances. Beyond that, we agree with my right hon. Friend that the Chancellor should have the final say on any decision that involves money and that the Bank of England is responsible for the provision of general liquidity. The House may want to know that the memorandum of understanding between the three authorities will also be revised to clarify responsibilities for decisions taken in a crisis.
	My right hon. Friend the Member for West Dunbartonshire—again, along with other Members—questioned whether the FSA failed in its regulation of liquidity risk. Primary responsibility for liquidity risk management by banks lies with banks' boards and management—that is a difficult sentence to get out—and that theme runs through our whole response to this situation. The FSA is reviewing its regulation of liquidity risk in the light of the recent events to learn lessons from market turbulence. The FSA published a discussion paper in December that sets out preliminary ideas for reform. It had a very good response to that document, and it is considering further how to respond to those responses. There is an ongoing debate about how it should respond.
	A number of hon. Members asked about international work. The FSA is considering responses to the discussion paper and in the context of ongoing international work on liquidity by the Basel Committee, which a number of hon. Members have mentioned. The FSA expects to publish more definitive proposals in the summer of 2008.
	My right hon. Friend also said that the FSA should work more closely with the boards of banks to identify issues early and take corrective action quickly. As set out in the tripartite consultation to which I have referred, the FSA intends to consult on new rules to require banks to produce additional evidence to the FSA at short notice, including strategies for correcting any problem identified.
	My right hon. Friend the Member for Norwich, South (Mr. Clarke), who has not rejoined us, argued very passionately and persuasively—as did a number of other Members, including most lately the hon. Members for Ludlow and for Fareham—for a new deputy governor and head of financial stability. All those Members will have seen that we proposed changes to the governance arrangements relating to the Court of the Bank of England to enhance its effectiveness, particularly in respect of financial stability. We also propose establishing a statutory role for the Bank of England again in respect of financial stability. These are ongoing consultations, and we do not seek to be prescriptive. We will listen to the representations in the ongoing debate around exactly what the new structure should be. The Government are thus taking these issues very seriously. As hon. Members will know, the Treasury, along with other tripartite authorities, published that discussion paper.
	Let me deal now with the Government's proposals for banking reform, which several Members asked about. We are proposing reform around five core objectives and those proposals build on examples of best practice around the world, many of which are highlighted in the Treasury Committee's report. The hon. Member for Hammersmith and Fulham and the right hon. Member for Hitchin and Harpenden (Mr. Lilley) raised questions about international precedence, and the hon. Member for Twickenham (Dr. Cable) proposed the US model, about whose adoption the hon. Member for Hammersmith and Fulham advised caution. It is true that most industrialised countries have a regime for banks either defined in law—in the US and Japan, for example—or created by specific exemptions carved out for financial institutions from the general insolvency law, as in France and Italy. At that point I was particularly taken with the suggestion by my hon. Friend the Member for Leeds, East that we read the book, "A Random Walk Down Wall Street" if we have not already done so; I shall see whether there is a copy in the Library. I look forward to reading it.
	The first objective of our reforms is to strengthen the stability and resilience of the financial system. That covers similar ground to the more recent Treasury Committee report on financial stability and transparency, which we also welcome—in relation to the operation of the securitisation markets, for example.
	The second objective is to reduce the likelihood of banks' failing. That includes new powers for the Financial Services Authority to gather and share early information and to make improvements to the framework for the provision of liquidity assistance. I am very conscious that another debate is about to take place, Mr. Deputy Speaker, so I offer my regrets if I do not manage to cover all the issues that have been raised. They are all important, but I will try to cover those that I think the House would most like me to deal with.
	A number of Members attacked, although some defended, the role of credit rating agencies. The current tripartite consultation to which I have referred identifies a number of causes for concern about the role of credit rating agencies, including conflicts of interest, the information content of ratings and over-reliance on ratings. We are supporting international work by the Financial Stability Forum and the European Union to look further into the role of rating agencies in financial markets. The Treasury, the Bank of England and the FSA are fully involved in those discussions, so I hope that that reassures not only those Members who had concerns about credit rating agencies but those who wanted to see us work more in an international context.
	My hon. Friend the Member for West Bromwich, West (Mr. Bailey) asked a very good question: if the FSA did not use its powers, what was the point of giving it any more? That is a paraphrase of what he said. The FSA is reviewing its internal supervisory systems in the light of Northern Rock and it will publish some conclusions in the spring. My hon. Friend also asked why we do not treat building societies in the same way as banks. The authorities appreciate that building societies are fundamentally different from retail banks; however, they must mitigate the risk of a building society failing, so they are consulting on which parts of the special resolution regime should be applied to building societies. We propose that liquidity assistance provided by the Bank of England should be exempt from the calculation of the proportion of building society funding which arises from wholesale funding. That change, Mr. Deputy Speaker, would remove an impediment to a building society being able to borrow from the Bank of England and would ensure that building societies are treated in a similar way to banks for these purposes.
	I am very much up against the clock at this stage, but I cannot resist responding to my right hon. and dear Friend the Member for Holborn and St. Pancras (Frank Dobson), whose rumbustious contribution raised several always very interesting points. I would like to reassure him on one particular point—that interventions using special resolution tools, which interfered with shareholders' property rights, would be to secure the wider public interest in financial stability, the continuity of banking services and the protection of depositors. Very careful consideration would need to be given as to whether compensatable value remained in a bank where such interventions were necessary. In other words, shareholders are a long way down the list of those who will be considered for compensation.
	This has been a very interesting debate, to which I have been privileged to listen and to be invited to respond. We have a wide-ranging set of proposals and the Government are committed to legislating on them as soon as possible—but only when we are satisfied that we secured the right response to the circumstances that we all lived through last summer. These proposals are only part of our work to learn the lessons from what has happened over the last six months or so. As the Chancellor has set out, we are also determined to play a full role in the European Union's and the international response to what has clearly been an international series of events. The UK is heavily involved in work at both the EU and the G7 level to analyse the causes of market turbulence and to develop an appropriate international response.
	As I hope I have explained, the Government are looking closely at the issues raised by the Treasury Committee under the chairmanship of my right hon. Friend the Member for West Dunbartonshire. We will keep the Committee's views firmly in mind as we continue to consult on our proposals and as we take them forward to legislation.
	 Question deferred, pursuant to Standing Order No. 54(4) and (5) (Consideration of estimates).

Norman Baker: That might well be so. It is difficult to interpret the position differently. But if that was the way in which public money was being spent, it suggests an improper use of public money—and certainly an unwise and ineffectual one, given how matters turned out. A contract that was designed to last for 30 years lasted only four years before collapsing. That is a terrible racket.
	When the Secretary of State gave evidence to the Committee on 7 November, she said:
	"There are always going to be costs in trying to get best value for money for the taxpayer."
	That is a curious statement. It suggests that getting best value for money for the taxpayer means spending lots of other money. It is a strange way of justifying what was a financial disaster for the Government, for the taxpayer and, I am afraid, for the people of London.
	I hope that the Government will learn lessons from this. There are lessons about the micro-management of train matters that they need to take on board. According to an article by Christian Wolmar, Ministers are about to make the same mistake with replacements for high-speed trains on the national rail network. He wrote:
	"Instead of a simple purchasing exercise, the Department for Transport is trying to be very clever and wants bids from consortiums involving train manufacturers and finance houses in a 30-year PPP scheme."
	Have we heard that before somewhere? According to those in the rail industry to whom I have spoken, the cost of the new high-speed trains on the east coast line will be well above what it should be as a consequence of the process in which the Department for Transport is involved. So look out, perhaps, for excessively priced trains on the high-speed east coast line come 2012-13.
	This PPP contract is difficult to defend in any way. It did reward contractors for moving toilets nearer to the driver's cabs at the end of the line so that they took less time going to the loo. That is, perhaps, one positive aspect that I have managed to find from reading through the PPP contract. It might have saved a couple of quid here and there by that move—or perhaps not when the cost of moving the loos is taken into account. The micro-management in the contract is such that it specifies such matters, yet it is unable to deal at all with the big questions about who Metronet gets its business from, why there were cost-plus contracts, and what would happen if it went into liquidation, which then occurred. No thought was given to that prospect by those who ratcheted up £500 million in bills for the taxpayer in order to give advice—but we did have advice about how near driver's cabs should be to toilets at the end of platforms.
	The Government need to learn many lessons from this, such as how to run their railway policy, not to micro-manage, and not to look at PPP through rose-tinted spectacles and to understand that it might have a role to play but it will not necessarily be the best option for the taxpayer. They also need to be more open about their own mistakes in 1998 and beyond.

Greg Hands: I thank my hon. Friend for that intervention. I am sure that her figures are absolutely right. I was going to talk about the overall passenger numbers on the tube and how they have developed in the past couple of years.
	Let us consider the population in our part of west London. Just last year, my local borough, Hammersmith and Fulham, had 7,300 foreign national applications for national insurance numbers. That is a huge number of people among an adult population of 120,000. My parliamentary constituency has the second largest population of any in Britain after the Isle of Wight. Most of those people are in employment and a lot of them go by tube, as my reference to the 2001 census showed. There is an enormous crush to get on that branch of the District line.
	The story is not necessarily much better for the Piccadilly line. In January, I met Piccadilly line managers, who had some very interesting things to say. I met them in the course of a campaign that we have been running to get the Piccadilly line to stop at Stamford Brook and/or Ravenscourt Park stations in my constituency. The District line stops there, but the Piccadilly line sails through. There seems to be no obvious reason why the Piccadilly line should not stop there and it has done so at various times, on a fairly impromptu basis. That is what the campaign is all about.
	The Piccadilly line managers made a strong case against the idea. They said that that the sheer number of passengers on the line meant that adding one or two stops would simply compound the overcrowding—the journey would be lengthened by two or three minutes and therefore the number of trains would be reduced. The managers told me that passenger numbers on the whole tube network have risen by 15 per cent. in the past two years. Numbers on the whole network are up by 7 per cent. year on year.
	The numbers on the Piccadilly line have increased the most in that time. In the past 18 months, the number of daily journeys on that line has gone up from 540,000 to 680,000. That is a 24 per cent. increase. Each Piccadilly line train, I was told, is running on average seven minutes late.
	Let me return to PPP. The amazing thing is that the upgrade of the Piccadilly line is not due to happen until 2014. The District line will be upgraded sometime after 2012, despite being a major route to the Olympic site. Those are some of the problems faced by my constituents.
	I shall talk briefly about some of the origins of the situation. We have already heard how PPP was set up. I did some research through some old press cuttings and found the most extraordinary row, which went on between 1991 and 2001 in particular but is still going on to this day, between the current Prime Minister and the Mayor of London over PPP. An article in  The Independent, published on 7 June 1999, was entitled "If your train is late, you should blame Gordon Brown". It is an interesting article, especially when we see that it was written by Ken Livingstone. He went on to say:
	"We all know that when John"—
	the right hon. Member for Kingston upon Hull, East (Mr. Prescott)—
	"settled on 'Public Private Partnership'...as the means to raise the resources, it was because it was the only option the Treasury would sanction."

Graham Stringer: Experience shows that my hon. Friend is right. That was the experience of Railtrack and of Metronet. I am a broad-minded person and I think all issues and processes should be looked at, but it would be surprising to find a vehicle with a major national asset where the risk could be transferred.
	I attend many Select Committees and have been doing so for a long time. Sometimes they can be tedious, but the hearings that we had in the Transport Committee on 17 October and 9 November were shocking, startling and in some ways exciting. It was like listening to a case involving embezzlers and fraudsters being described and knowing that they had got away with it. It was an extraordinary process. If Tony Soprano or his ilk in New Jersey knew what was going on with Metronet, they would have left New Jersey and come over to London, where they could have given advice and got hundreds of millions of pounds, risk free. It is an amazing story.
	Tube Lines has been mentioned as being better than Metronet. It is undoubtedly better than Metronet, but it is far from perfect. There were problems with the improvements on the Northern Line. There is good management there, but when we look at the basic assessment of the financing, even of Tube Lines, and then look at the public sector comparator and read what the National Audit Office said about public sector comparators, which is the basis that shows that these schemes would be more profitable, we find that the NAO backs away and says, "These comparators are so subject to the assessment of risk that you can't really judge them". That is a way of saying, " There is a fiddle factor in there that we cannot assess, and the experience is that they probably won't save the money that you expect."
	With reference to the financing of Tube Lines, where much of the finance was guaranteed because it could not be obtained from the markets, what happened as soon as Tube Lines got the contract? They refinanced on the open market, which was an indication that they could have been financed at a better rate and that what was driving the process, as a number of my hon. Friends said, is ideology. Tube Lines also had a much higher materiality threshold. We heard that no risk was transferred, and that 95 per cent. of the money was secured; not only 95 per cent. but an extra £500 million—I am talking about the consultants—on the cost of borrowing, so there was no risk to the lenders. Those who would normally be expected to exert pressure were exerting no pressure at all.
	The results on the ground—my hon. Friend the Member for Liverpool, Riverside (Mrs. Ellman) referred to some of these—were that on the Metronet surface lines, 10 out of 18 stations were done. Instead of costing £2 million each, they cost £7.5 million each. On the other Metronet contract, four stations out of 17 were done. Effectively, between two and four stations were paid for and only one was delivered. That is the story that we heard. Although it is difficult to know exactly how much money was overspent, it looks as though it was £1 billion. Nobody can assess it because the funding was available and it is not yet known what the cost was.
	As I said, there was no pressure from the bankers because they had the money. Either it was secured or they got extra money for what they were doing. They did not put any extra pressure on. One would normally expect the owners of equity to want to know what was happening with their money, but this is where the real corruption in the Metronet contract comes. The people who were the equity owners and who had £350 million at risk were effectively paying themselves to do the work at those extraordinary prices. It is easy, isn't it? One of the companies—Bombardier, for example—says, "There's my £70 million. I will overprice this contract at twice the rate. I'm already expecting 20 per cent. return on the capital, so I'll get my money back very quickly indeed." When the Secretary of State gave evidence to the Select Committee, I told her that
	"real corruption has gone on."
	She said:
	"I have no evidence to suggest there was corruption."
	There is direct evidence of corruption. Those people paid themselves out of public money to do less work than they should have done while taking no risk whatsoever.
	The other pressure that normally applies to people who are building things comes from clients, but London Underground was kept out of the matter. Metronet would not tell London Underground what was going on, and the contractors would not tell it what was going on, which was an extraordinary situation. We asked Mr. Pimlott, who was chairman of Metronet for a period, why he did not stop paying the contractors, who were effectively his fellow members on the board, ridiculous sums of money. He said that when he made that suggestion he was threatened with legal action by other members of the board. The story is extraordinary.
	If the scheme were publicly funded, there would be direct lines of accountability, and if it were a private sector scheme, the private sector would take the risk and the loss, but we have neither public accountability nor risk. The Mayor is not responsible—he was against the scheme from the beginning. The Government say that they are not responsible in a direct sense, although pressure from the Treasury undoubtedly caused the situation. The companies have walked away with a great deal of money, so they are not responsible. When the Secretary of State was asked what she thought, who was responsible and what should happen, which might have involved an inquiry or someone having to go, she said this about the infracos:
	"I do not think that anyone should underestimate the impact on their reputations."
	On 6 March,  The Guardian stated that Balfour Beatty, which was one of the bad five in this case, had reported a 48 per cent. rise in profits and that it was on the verge of signing a new deal on the underground to carry on doing the work for which it has already ripped off the public sector. If that is not a scandal and corruption, I do not know what is and words have lost their meaning.
	What should we do? There should clearly be a public inquiry, because there is no accountability. Who has suffered? We do not know exactly because we do not know the cost. In the end, however, the fare payer will pay and passengers will suffer. For example, Transport for London has indicated that it may not be able to fit cooling systems on the tube. The taxpayer will pay.
	Finally—I care about this a lot—when huge expenditure achieves a fraction of what it should produce, it is not only the taxpayer who is affected, because in relative terms there has been a bigger increase in expenditure on transport in the south-east and London than in the regions, so the regions have suffered. The deal has been bad for everybody, and the lessons should have been learned 10 years ago. I hope that we never go into another opaque scheme in which no risk is transferred. The scheme has been bad for the Government's reputation. Ken Livingstone was right and the then Chancellor of the Exchequer was wrong.

Margaret Hodge: I congratulate the hon. Member for Harrogate and Knaresborough (Mr. Willis) on securing the debate and on the passion that he has shown in the defence of the theatre in his constituency. He has highlighted something that I regard as extremely important, namely the contribution that theatre can make at the heart of community and the contribution that culture can make in building an identity and a feeling of belonging in communities up and down the country.
	The hon. Gentleman has discussed the difficulties facing the Arts Council. I would not call them "difficulties"; I would reword that and call them "challenges". Those challenges are of the Arts Council's choosing, and they are challenges that the Arts Council has met and that we support. The Arts Council is looking more radically than it has ever done in the past at the organisations that it chooses to fund regularly. It is easy to forget that just 10 years ago many of our theatres were struggling to survive, because they were caught in a downward spiral of deficits and because funding was inadequate.
	The situation has been transformed by our achievements in the past decade. There has been a 73 per cent. real-terms increase in funding to the Arts Council, which has meant the doubling of funding for the theatre, and the theatre sector has responded in the best possible way by improving the quality of its work and growing its audiences. According to our last survey, nearly a quarter of adults attended a theatre performance in 2005-06.
	I managed to go to the theatre tonight before coming to this debate. I saw "Random", by Debbie Tucker Green—a terrific, powerful play at the Royal Court. I could not resist the temptation of seeing how excellently it had been directed by Sacha Wares. The solo part was powerfully performed by Nadine Marshall. The play touched on many issues that I know are close to the hon. Gentleman—it was about a black family who had lost a boy through a stabbing. The best line of the play was:
	"Don't trouble trouble 'til trouble trouble you."
	That will stay with me.
	I am proud of the Government's record of recognising and supporting the arts and of the great achievements that the arts sector has delivered with that investment. In October last year, we announced that grant in aid funding for Arts Council England would rise to £467 million by 2010-11, an increase of 3.3 per cent. above inflation. In our tight fiscal environment, that is good. It will represent an extra £50 million above inflation by 2010-11. On 1 February this year, the Arts Council announced its spending plans for the coming three years. Some 753—that is, three out of four—of its regularly funded organisations will receive increases in their funding in line with, or above, inflation and 81 new organisations will be invited to join the regularly funded portfolio.
	Let me spell out to the hon. Gentleman what that means for theatre. In 2007-08, annual investment will be £101 million. Proposed investment between 2008-09 until the end of the spending review period is £318 million, a cash-terms increase of 8 per cent. There are 223 organisations and 21 new organisations in the portfolio. Producing theatres remain central to the theatre infrastructure of this country and many organisations are receiving above-inflation uplifts, including the New Wolsey in Ipswich, the Oldham Coliseum, the Arcola in London, the New Vic in Stoke-on-Trent, the Northern Stage in Newcastle and the Hull Truck Theatre Company. Funding for organisations in the theatre sector in Yorkshire will rise from £7.2 million to £7.5 million, an increase of 4 per cent. in cash terms. Overall, Arts Council England will invest nearly £81 million in Yorkshire between 2008 and 2011.
	In that context of good news, there has been bad news for some organisations. There will be 43 non-renewals and reductions, including the Harrogate theatre. However, I say to the hon. Gentleman in all sincerity that politicians have to stay away from making decisions on what and what not to fund. Since the Arts Council was founded in 1946, it has been a fundamental principle that funding decisions for individual arts organisations should be made by the council, at arm's length from the Government. When the Leader of the Opposition had a meeting with the Arts Council, he said that he hoped it was not going to fund too many one-legged, Lithuanian lesbian organisations. I hope that he understands why it is so important that we maintain our distance; we do not want those sorts of values to inform funding decisions made by the Arts Council.
	The arts change and grow, and it is right that the council's funding plans should reflect that and make room for new talent to develop and succeed. We would not want it to fund the same organisations at the same level year after year. That is why I support the approach that has been taken, although it has led to some difficult situations.
	I turn directly to the issues raised by the hon. Gentleman. I urge him to seek a meeting with his regional arts council and with Harrogate theatre to understand better the funding decision. The reason why some of the underpinning rationale for the decision has not been made public is that it is seen as a confidential relationship between the organisation and the Arts Council. It would benefit him, and the theatre, if he had that open, face-to-face discussion with the Arts Council.
	I hope that the hon. Gentleman accepts the principle that the Arts Council should not fund things in the present and the future just because it has funded an organisation in the past. However, I understand that this year's process has been painful, and I know that the Arts Council will itself want to review it to see how it can do things better next time. Again, that is something for it, not for us to do, because that would be an unacceptable intervention.
	Taking the actual position on Harrogate theatre, in 2006-07 the Arts Council grant was nearly £400,000—27 per cent. of total income. In 2008-09, as the hon. Gentleman said, it will reduce to £150,000, which means that about 10 per cent. of its income will be met from Arts Council grant. As I understand it, the theatre therefore faces a cut in grant but not closure. In 2006-07, it earned £700,000 from box office receipts and from activities such as incoming tours and co-productions. It also gets a grant of just under £200,000 from the local authority. It is interesting enough to look at those figures, but there is another aspect. The figures given to me say that £40,000 came from donations and sponsorship and £40,000 from fundraising events.
	One of the bits of work that I am trying to do, right across the cultural and arts field, is to try to move these organisations from a total dependence on public subsidy to what I would term a much more social enterprise culture, so that they see themselves with a range of funding streams, not as completely dependent on public funding. That is hugely important, not only because it means that they are not dependent on the vagaries of public funding expenditure rounds but because it gives them an independence that allows them to be much more innovative and adventurous than if they are always looking over their shoulder at the public sector.
	The hon. Gentleman's region happens to be rather well supplied with producing houses, including West Yorkshire playhouse in Leeds, York Theatre Royal, Hull Truck Theatre Company, Stephen Joseph theatre in Scarborough and the Crucible theatre in Sheffield. A view will probably have to be taken on that regional infrastructure. There is also a range of Arts Council-funded receiving houses in Yorkshire. Lawrence Batley theatre in Huddersfield and Theatre Royal Wakefield are comparable in scale to Harrogate theatre. Lawrence Batley theatre will receive £120,000 from the Arts Council—not that different from Harrogate theatre—and Theatre Royal Wakefield will receive £96,000. As a receiving theatre, Harrogate does not do that badly.
	Many of the organisations that face challenges over their funding this year were surprised. I think that that is because the Arts Council has never undertaken this exercise in the past, and nobody really believed that they would undertake that radical reform to ensure that we fund those organisations that will contribute to future developments. I am told that the theatre was first informed on 12 December 2007. That was a little late, partly because we as a Department took the view that we would not take an early settlement under the comprehensive spending review but hold out for a much better settlement from the Chancellor. That worked in our favour so that we were able to inflation-proof and grow a little bit the totality of the funding to the Arts Council.
	The Arts Council told the theatre that it believed that over several years performance had been consistently weaker than other parts of the regional building- based producing theatre network. It says that that was set out in the letter of 2005, and it did not change its view. It recognised that the managerial and financial improvements delivered in the past year addressed some of the issues that it had raised previously, but the inherent weaknesses of the organisation in relation to the quality of the programme and the long-term challenge of the theatre's physical limitations informed the decision that it took. The council thought that the current programme and operation, with large amounts of amateur productions, a long-running Christmas show, and the toured-in work to which the hon. Gentleman referred, is more indicative of a middle-scale receiving theatre than a producing one. It felt that that made its current investment disproportionate.
	In the light of those remarks, the Arts Council wanted to enter into discussions with the theatre and other funding partners to explore options for presenting performing arts work in the town. It remained unconvinced that the theatre has the capacity to build and sustain high audience levels for a year-round programme of quality produced work and thus it believed that the scale of its previous investment did not represent value for money.
	As the hon. Gentleman will know, representations were made by the Harrogate theatre to the Yorkshire regional arts council, which then met to consider those representations at the end of January. At that meeting, the regional arts council could not accept the argument from Harrogate theatre for an alternative level of reduction, as the hon. Gentleman proposed. However, it acknowledged that Harrogate theatre was distinctive from other similar scale receiving theatres in its significance to a large rural area. That argument, advanced by the theatre and the local authority funding partners when they talked about the importance of maintaining significant rural outreach, youth and educational work, informed the regional arts council's decision to raise the level of support that it was willing to give. That is how we ended up with the £150,000 figure.
	I know that my response will not please the hon. Gentleman as much as he would have liked, but I urge him to deal with the issue. I hope that he understands the important reason why Ministers do not engage in challenging such decisions. Our task is to ensure that any information we have is put before the Arts Council, but the decision has to be for the council. I support the proposition that underpinned its strategy this year, which was to refresh its portfolio to fund innovative, new theatre organisations so that the cultural ecology of the UK could remain pre-eminent in the world today. Within that policy, there will always be challenges for individual theatres, and for the theatre sector as a whole, but we are in a better position to meet those challenges, and to make the most of the new opportunities on offer, than we ever have been before. I hope that, in that spirit, the hon. Gentleman will accept my response.
	 Question put and agreed to.
	 Adjourned accordingly at twenty-eight minutes to Eleven o'clock.
	Correction
	 Official Report, 4 March 2008: Col. 1714, in Division No. 116, under Ayes, insert:
	Taylor, David